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A stock's return to you can soar over time when reinvesting dividends



By Dian Vujovich

By now you’re well aware that I’m a huge fan of dividend-paying stocks. Not just any dividend-paying stock but ones from companies that have a long history of paying them.

Sure small- and mid-cap stocks that don’t pay a dividend can see their per-share prices soar over time . Even large-cap ones—look at what’s happened with Apple. But for a long-term play that comes with the additional kick of an annual pay-off, a solid dividend-paying stock is hard to top when reinvesting those dividends year after year after year.

That said, there’s nothing like a picture to prove a point. In this case, the picture is a graph and the graph is of a company some might call a sin stock: Altria Group, Inc.

If that name isn’t familiar perhaps this one is: Phillip Morris (MO). You know, it’s the company that introduced us to the hunky Marlbora man years ago and in addiiton to smokes has brought us things to accompany them like Miller beer, Ste. Michelle wines and Kraft macaronni and cheese.

In 2003 the company changed its name to Altria Group and to this day remains a good example of how a sin stock can pay off as it cottons to peoples needs popular or not. And because we all know cigarette smoking has been on the decline for decades, MO has added the manufacturing of smokeless tobacco products and machine-made cigars into its fold to keep up with the times.

At this point I must announce that I’m not suggesting you or any investor go out and buy shares of MO. I don’t own any and I’m only using the company as an example of how reinvesting dividends can make money for investors over time. Plus, had I not read “The Extraordinary Power of Dividends: Altria Edition” by Morgan House at The Motley Fool’s Website the other day, I wouldn’t have seen the yowzer graph I’m writing about.

To keep this blog as short as possible, here’s the deal: From 1968 and through 2010, while shares of Altria have increased 11,000%, if an investor had reinvested their dividends all through the years the total return jumps to 278,000%.

Kind of makes giving a kid a birthday, graduation or glad-you-were-born gift of shares from a high quality, well-established company with a long history of continually paying dividends make good sense.

See the graph and read the story at: http://tinyurl.com/6f6u4nl .


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